Hala Elsherbini - Halliburton Investor Relations Michael Benstock - Chief Executive Officer Andy Demott - Chief Operating Officer, Chief Financial Officer and Treasurer.

Good afternoon, everyone. Welcome to the Superior Uniform Group’s Second Quarter 2015 Conference Call. With us today are Michael Benstock, the Company’s Chief Executive Officer and Andy Demott, its Chief Operating Officer, CFO and Treasurer. After the speakers’ opening remarks, there will be a Q&A session.

[Operator Instructions] Now, I will turn the call over to Hala Elsherbini, Senior Vice President of Halliburton Investor Relations who will read the Safe Harbor statement. Please go ahead..

Thank you and good morning. This conference call may contain forward-looking statements about Superior Uniform Group’s business opportunities and its anticipated results of operations. Please bear in mind that forward-looking information is subject to risks and uncertainties and actual results may differ from what you hear today.

Many of these risks and uncertainties are described in Superior Uniform Group’s Annual Report on Form 10-K for fiscal 2014 in this morning’s news release and the company’s other filings with the SEC. Forward-looking statements in this conference call are based on our current expectations and beliefs.

Management does not undertake any duty to update the forward-looking statements made during this conference call or otherwise. Please note that all growth comparisons that management makes today will relate to the corresponding period of last year unless otherwise noted. With that, I will turn the call over to Michael..

Thank you, Hala and good afternoon everyone. We are happy you could join us to learn more about our performance in the second quarter and first half ended June 30, 2015. I will start as usual with some highlights of our operational financial performance. We will follow up with some comments on general industry trends.

Then Andy will give you some additional background on our financial results. I will return afterwards with a general outlook for the second half of the year. And after that, we will both be happy to answer your questions.

Those not familiar with our company may not recognize the significance of the 1.7% net sales increase we achieved in the second quarter, but we have to say we are quite pleased with the results given the difficult sales comparison.

It is especially gratifying given the fact that the prior year second quarter included two unusually large program rollouts, which we have spoken about before, a $5 million new uniform program for one airline customer as well as the $2.5 million promotional products order for retail ID customer.

As we have indicated repeatedly in the past, we continue to service these two customers. However, they were not expected to provide recurring revenue at those same levels. Our sales and marketing team aggressively pursued each and every opportunity, delivered organic growth of more than 15% to overcome the $7.5 million revenue gap.

The increase was split between more business with existing customers and higher market penetration with new customers. As a result, we reported a net sales increase for our 11th consecutive quarter and for the 17th time in the last 18 quarters. We are very proud of that.

While our bottom line reflected lower net income, keep in mind that net sales from large rollouts and promotional orders, such as the two mentioned above are reported in a single time period and are typically the result of timing expenses that are incurred over a longer period and can result in a short-term distortion in net income.

Additionally, we incurred a pre-tax pension settlement loss and our diluted earnings per share was further impacted by a 6.8% increase in diluted shares outstanding. Andy of course will provide more insight in how this flow to the bottom line in his remarks. Let’s review the four actions we took that drove our second quarter progress.

First, in conjunction with our long-range planning, we have reorganized our uniform segment leadership to focus on our four well-defined uniform markets. Each market leader has a clear mandate and accountability at the highest levels and they have led their people to meet our goals for the quarter.

Secondly, our direct sales approach in the healthcare market continues to produce expected results. We made additional progress in selling to the members of group purchasing organizations. As you know over the past 2 years, we have increased our sales and support staff to better reach this direct healthcare market.

While we are starting from a small base revenues and opportunities from GPO members are accelerating and should gain higher momentum from these levels going forward. We are increasing our penetration of the organizations we currently serve and are very active in acquiring relationships with other GPOs.

To reiterate, our goals for this to become a significant part of our business in the next 3 to 5 years much work is yet to be done. Thirdly, our Promotional Products division, Blue Fusion delivered nicely and was able to replace most of the revenue generated by last year’s $2.5 million order.

The combination of an aggressive sales effort plus a good up-sell strategy led to the solid achievement. And finally the Office Gurus, our remote staffing business experienced another large double-digit increase in sales. As you know, this is our call center and BPO operation.

There are incredible growth opportunities here for a very profitable business, which contributes handsomely to the bottom line every quarter. We are seeing the benefits of a very strategic and focused management team.

These leaders are executing on a detailed growth roadmap, which involves adding new customers as well as increasing sales to existing customers and they are doing it very well. The specific actions we took this past quarter were enhanced by the positive market environment driven by a slowly improving economy.

New jobs, new hires and employee turnover are all positive indicators for our business. Labor stats from the U.S. Department of Labor showed most employment indicators and may continue near historic levels. The greatest number of job openings occurred in two of the markets and support our growth, retail trade and healthcare.

Total hires were 5 million people for the 12 months ended May 31 remaining at the highest levels in more than 7 years. In addition, the number of those who quit their jobs stated 2.7 million, or 1.9% of the working population. More people were hired by employers and left their companies.

In healthcare alone, the number of job openings increased by 19% between May 2014 and May 2015. Hiring in healthcare was up 7.7% from a year ago and job separations rose 10%. All this bodes well. All of this should lead to greater demand for our products for the foreseeable future.

More people will need uniforms as total employment in the markets we serve grows and as turnover increases. With lower unemployment, employers need to work harder to keep good people. One known way to increase employee satisfaction is to provide them with more and better uniforms.

Companies also are interested in spending more on branding initiatives, which fits not only into a uniform strategy, but also fits very well with our value-added branded merchandise promotional products offering as I mentioned earlier.

It is a logical extension of our product portfolio and offers a one-stop shopping experience for our customers to round out their corporate identity programs. Our performance this quarter proves there is growing demand for this part of our business. Now, I will turn the call over to Andy to walk you through the 3 and 6-month performance..

Thank you, Michael and good afternoon everyone. Let’s start with the second quarter income statement. Net sales increased 1.7% to $54.1 million. Remote staffing solutions accounted for 1.9% of growth, while the uniforms and related products revenues were down slightly at 0.2%.

As I said, the uniforms and related product sales were essentially flat with last year’s second quarter. But as Michael mentioned above, we closed the gap to also have the contributions of a major uniform rollout and a Promotional Products program last year that totaled about $7.5 million in sales all with organic growth.

Uniform program for chain retail stores were the strongest for us showing the largest double-digit increase. Healthcare, foodservice and private security also experienced significant expansion. And we are reinvigorating our legacy laundry business by establishing a stronger presence here.

The remote staffing solutions segment saw quarterly sales to outside customers rise 53.9% from a year ago. This operation continued to attract new customers as well as build deeper relationships with existing ones. Cost of goods sold rose about 4% to $35.6 million. As a percent of sales, there was 65.8% compared with 64.3% in 2014.

The main difference was higher direct product cost as a percentage of sales due to the absence of last year’s $5 million new airline uniform program rollout. The contract had a higher than average gross margin as it also required a higher level of customer service and distribution cost.

Our global sourcing team which creates product cost savings while maintaining quality and our logistics group which secures cost effective and reliable ways to get products to our customers continue to make positive contributions here.

As expected, gross margins as a percentage of sales was down slightly to 34.2% or $18.5 million, for the 2014 second quarter it was 35.7% or $19 million. As we indicated on prior calls our gross margin fluctuate mainly based on customer mix and the level of service requirement.

Some of our uniform contracts carry a high gross margin that require a higher service component such as the large rollout I mentioned earlier. Other contracts are low touch and have lower gross margins, but just as profitable if not more so than contracts with higher gross margins.

Our focus is on the net margin, so we believe looking at operating margins offers a better measure of our overall progress. Selling and administrative expenses were flat for the two periods at $13 million, essentially it’s moving out SG&A without the higher expense contribution from the large customer rollout.

As a percentage of net sales SG&A dropped to 24% for the second quarter compared to 24.5% last year despite including a $260,000 pre-tax pension settlement allowance. Overall, we are able to leverage our fixed cost structure in capital as on economies of scale. Interest expense increased 14.2% compared to the year ago quarter to $129,000.

Income from operations declined by 8.1% to $5.4 million, that led to a lower operating margin at 10% compared with 11% for last year second quarter. Our effective tax rate declined 32.8% from 33.4% in 2014.

The decrease in the effective tax rate is attributed primarily to the reversal of previously recognized deferred tax on income from foreign operations that is now to be – now determined to be permanently invested.

This was partially offset by a decrease in the benefit for income from foreign operations and an increase in the amount of taxable income subject to the higher federal rate on earnings in excess of $10 million. As you recall, our earnings in El Salvador and Belize are permanently invested there and we pay minimal taxes in those countries.

This means there is no U.S. tax provision for their earnings. And because of the significant increase in our domestic income over the last several years, foreign income is a much smaller percentage of the total. Net income for the quarter was $3.6 million, down 7.2% from this time last year, reflecting a decrease of $300,000.

On a diluted per share basis the second quarter earnings were $0.25 versus $0.29 last year. As Michael mentioned this year’s second quarter reflect the impact of 6.8% increase and diluted shares outstanding due to share based compensation awards and an increase in the company’s average share price.

Now, for a recap of our income statement for the six months, net sales grew 6.6% to $100.5 million. Uniforms and related product sales expanded by 5% during this time, with remote staffing solutions revenues to outside customers showing 45% growth. Cost of goods sold increased 8.1% to $66.1 million.

This represented 65.8% of sales compared with 64.9% for last year’s first half. SG&A expenses continue to increase at a lower rate than sales, rising only 1.3% from the year ago to $25.4 million. As a percentage of sales SG&A dropped to 25.3 % compared with 26.6% in 2014 first half. Interest expense rose 27.4% to $265,000.

This indicates the higher interest rate paid on part of our long-term debt as part of an interest rate swap that went into effect in July of 2014. Operating income grew 11.3% to $8.6 million that may be the operating margin for our first six months 8.6% compared with 8.2% for the prior year period.

Our effective tax rate rose to 34.2% from 33.9% for last year first half. Net income for the latest six months expanded 10.6% to $5.7 million and diluted earnings per share were $0.39 versus $0.38 a year ago on 7.1% higher diluted shares outstanding. We also return value to our shareholders in the form of quarterly dividend.

For the latest six months we paid cash dividends of $2 million versus $1.7 million a year ago reflecting 11% increase we put in place during last year’s third quarter. Turning to the balance sheet, our financial condition remains very strong. Cash and cash equivalents rose 39.6% for the year-to-date period to $6.4 million.

Accounts receivable grew 6.7% to $29.8 million reflecting the higher level of sales this year. Inventories increased 4.3% to $60.8 million to support the higher sales volumes. This also led to a 45.2% increase in accounts payable to $14.1 million. Long-term debt was 9.5% lower at $20.5 million as we use cash to pay down debt.

Shareholders equity expanded 8.8% to $87.5 million. Cash flows from operating activities were $5.5 million during the first half versus a $9.1 million use of cash at this time last year due primarily to the build up of large program rollouts in last year’s second quarter.

As you would expect, this year’s spending will focus on property, plant and equipment as we continue to build out the new Office Gurus facility in El Salvador. Overall, we are pleased with our 3-month and 6-month performance. Now, I will turn the call back to Michael, so he can share a general outlook for the company..

Thanks, Andy. In the second quarter, we lived up to our promise to close the gap on the revenue generated by the two major program rollouts a year ago. This is a testament to our brand and design strength and market penetration.

I am truly proud of our organization for delivering a solid second quarter and uncovering opportunities within a highly competitive environment. Looking ahead our pipeline of opportunities remained strong and is getting stronger. We expect all areas of our business will continue to improve throughout the year.

We are still aggressively seeking the right acquisitions and analyzing synergistic opportunities for our uniforms, promotional products and remote solutions businesses. We are in active discussions with a number of acquisition candidates but will only continue to pursue those that meet our criteria.

This includes operations that give us critical mass in existing or new market, create new relationships for us or add products and services that are a logical extension of our business. Our solid financial position gives us the flexibility to take action when we find the right opportunities.

We remain on track with construction at the Office Gurus new call center in El Salvador. This facility ultimately will house over 1,200 agents who will help support the profitable growth of this business. The building should be completed early in 2016 and begin operations soon thereafter. With that as background, let’s open the call for Q&A..

Operator:.

Okay. No questions. I would like to think that we would have a few, but we will leave it at that. Thank you, Kate. As you can see, there was much great news during the quarter both from an organic growth perspective and our ability to hold the line on costs.

We are excited about the continued momentum in our business and we are optimistic about the rest of this year. Demand is increasing in the markets that we serve in part from an improving economy. There is bolstering new jobs and higher turnover.

As companies look to keep good employees and continue to build their own businesses, they see the benefit our comprehensive approach to uniform and promotional products.

Additionally, we are successfully filling the niche in the call center industry by securing accounts with smaller seat requirements and offering outsourced business processes that deliver more cost effective and productive solutions.

Our strong operating fundamentals are rooted and our volume purchasing power, redundant global sourcing and manufacturing capabilities that allow us to control costs and improve the bottom line. And our strong balance sheet enables us to invest in our growth, which creates near-term dividends and long-term value for our shareholders.

In closing, I would like to commend our staff on a job well done, they continue to excel and deliver on the long-term strategies. Andy and I appreciate your time today and the confidence that you and all of our investors have in the company. We look forward to sharing our third quarter and 9-month results with you in October.

In the meantime, we hope you enjoy the rest of the summer..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..